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In the Netherlands a very interesting tax benefit is offered for specialist staff recruited from abroad. This tax benefit is known as the 30% ruling. This ruling can be granted after a request thereto at the tax authorities and is applied by the employer on the salary of the foreign specialists through the withheld wage tax. In order for the foreign specialist to qualify for this ruling, he/she has to meet certain specific (quality) requirements.
In case the ruling is granted it will be applicable for a maximum period of eight years (five years as of 2019). In practical terms the ruling encompasses that 30% of the earnings from current employment (including one-time bonuses, etc.) is left tax exempt.
In best case at least 30% of the income from current employment falls in the highest tax bracket which than leads to a tax benefit of 52% over that part of the income. Additionally, the system has other benefits;
- Employers’ contributions to international schools for expat’s children remain tax exempt;
- Driver’s licenses can easily be converted;
- An important additional tax benefit is that the tax liability, at the request of the employee, in the so called box 2 and box 3 (equity tax) is significantly reduced.
The 30% ruling scheme has not remained undisputed during its existence, both in jurisprudence and in parliament. The Finance Secretary of State decided to make some changes in the system as per the year 2012 and additional changes will follow as per 2019.
Conditions in order to qualify for the 30%-ruling:
Recruited from abroad by a Dutch employer–
The 30% ruling is only applicable on persons recruited from outside the Netherlands. To qualify you may not be a Dutch tax resident at the time of first recruitment. The date of first recruitment could be the signing date of the employment contract. It is therefore crucial that you do not take too many steps of becoming a Dutch resident before the recruitment has been formalised.
In some cases people who are already studying in the Netherlands and find employment here after their studies the discussion could arise if these persons have become Dutch tax residents at the time of their studies in the Netherlands.
Many factual factors play a role to determine Dutch tax residency. Registration in a Dutch municipality is an important pointer, but may not be leading when determing Dutch tax residency. When defining ‘outside the Netherlands’, please be referred to the below mentioned comments on the so called ‘150 kilometer criterion’.
A salary criterion is to be met. There are three qualifying salary groups:
1. Scientists do not have a salary minimum;
2. People below 30 years of age with a Masters education have a minimum salary requirement in the year 2018 of EUR 28,350 (EUR 28,125 in the year 2017) excluding the 30% reimbursement and EUR 40,500 (2018) / 40,178 (2017) including the 30% reimbursement;
3. For Expats that do not match the groups under 1 and 2, a minimum salary requirement applies ofEUR 37,296 (2018) / EUR 37,000(2017) excluding the 30% reimbursement and EUR 53,280 (2018) / EUR 52,857 (2017) including the 30% reimbursement.
Please note that these minimum amounts are subject to annual indexation. In principle the salary criterion may not be decreased pro rata in case of a part time employment. There is an exemption on this rule in case of parental leave.
The salary criterion in principle replaces the prior criterion of required specific skills, in that sense the ruling has become more accessible. Please note however that the salary criterion is a continuous test, the employer is therefore held to continuously check whether all requirements are still met by its employee.
Formally the scarcity of the expertise at hand must be demonstrated, however only in case the salary of a certain group of professionals is as a standard above the salary criterion, e.g. soccer players, scarce specific skills are actually to be proven. For are all other groups scarce specific skills are proven by meeting the salary criterion.
150 kilometer criterion–
Persons living, for a period of 1/3 or more of the 24 months prior to the employment, within a radius of 150 kilometer (‘as the crow flies’) from the Dutch border are not eligible for the ruling. Please note this 150 kilometer area is calculated directly from the Dutch land borders, so not including the territorial/economic Sea area.
For example former UK tax residents from London will qualify, however expats from Belgium will in principle not qualify. Several court procedures as well as the EU commission have concluded that the 150 kilometer criterion is not in breach with EU law.
Previous stays in the Netherlands–
Allprevious stays, with some exemptions, in the Netherlands during the prior 25 years will be deducted from the maximum applicable term of the ruling.
Applicable term of the ruling–
The applicable maximum term of the ruling is 8 years (5 years as of 2019). A request for the ruling is best to be filed within the first four months after the commencement of the employment as in that case the ruling will have retroactive affect until this commencement date. If the request is first filed after these first four months have passed, the ruling will only be applicable as of the month following after the month in which the request has been filed. Also in that case the preceding period will be deducted from the maximum applicable term of 8 years.
Furthermore it is crucial that in case your employment is terminated, a new employment is commenced within three months after the last day at the previous employer. If this term is exceeded, the 30% ruling can not be commenced at this new employer. To commence your 30% ruling at a new employer again a new request for the ruling is to be filed at the tax authorities.
On regular basis we advise expats and/or their employers on the 30%-ruling, part of this advisory is preparing the actual request for the ruling. As the interest of being granted the ruling can be very high, it is worthwhile to invest sufficient time to assess the exact situation of the employee compared to the applicable legal requirements.
We will take care of the full process and if required we can contact your employer’s HR department to explain the workings and conditions of the 30%-ruling.
To this purpose please feel free to contact us to arrange a non obligatory meeting. You can also consult us for a second opinion on your pending request or in case your initial request has been denied.
We work at a competitive fixed fee and offer more than 15 years of experience with obtaining the 30% ruling. You can contact us here